Expiring Tax Provisions: Some Significant Tax Breaks Are Set to Go Away
By: Caitlin Fansler
The Tax Cuts and Jobs Act (TCJA) of 2017 made significant changes to tax law in an effort to simplify the tax filing process. Some of these changes included an increased standard deduction, reduced income tax rates, expanded child tax credits, and a qualified business income deduction. Many of these provisions were only temporary and are set to expire absent additional legislative action. Below are some of the most significant provisions that will be expiring. It is not an all-inclusive list and is subject to change, but these items are important to consider for tax planning purposes.
2022 Expiring Tax Provisions
1. 100% Bonus Depreciation Phaseout – The TCJA allowed for a 100% bonus depreciation deduction for qualifying assets placed in service, such as vehicles, furniture, and equipment. The bonus percentage will decrease by 20% each year, starting in 2023, and will be completely phased out by 2027. Please note that the phaseout period does not begin until 2024 for certain property with a long production period. See phaseout details below:
a. 2023 (Placed in service between 1/1/23 – 12/31/23) – 80% bonus depreciation allowed
b. 2024 (Placed in service between 1/1/24 – 12/31/24) – 60% bonus depreciation allowed
c. 2025 (Placed in service between 1/1/25 – 12/31/25) – 40% bonus depreciation allowed
d. 2026 (Placed in service between 1/1/26 – 12/31/26) – 20% bonus depreciation allowed
2. Temporary 100% Deduction for Restaurant Business Meal Expenses – Although unrelated to TCJA, the IRS temporarily allowed 100% business meal deductions in 2021 and 2022 for certain business meals provided by restaurants. However, this temporary increase expired for restaurant meals purchased after December 31, 2022. In 2023, a business can deduct only 50% of the cost of all business meals.
2025 Expiring Tax Provisions
3. Increased Standard Deduction – TCJA created a significantly increased standard deduction resulting in more individuals claiming the standard deduction and less itemizing. When this provision expires at the end of 2025, the standard deduction will be nearly cut in half. For tax planning purposes, it means more individuals will likely itemize again. In addition, the personal exemption will be reinstated beginning in 2026, subject to certain limitations.
4. Qualified Business Income Deduction – TCJA created a special 20% deduction for certain pass-through business income, such as partnerships, S corporations, and sole proprietorships. The provision allowing this deduction will expire after 2025, resulting in more taxes being paid on pass-through business income.
5. Limits on the State and Local Tax Deduction – TCJA limited the state and local tax deduction to $10,000 per household. When this expires at the end of 2025, the state and local tax deduction will no longer be capped annually. While the deduction will still be subject to phaseouts at higher income levels, many can expect to see an increase in their itemized deductions. This coupled with the decreased standard deduction will result in many more individuals itemizing.
6. Miscellaneous Itemized Deductions – The TCJA suspended the ability for taxpayers to deduct miscellaneous itemized expenses, such as unreimbursed employee expenses, investment expenses, and tax preparation fees. This suspension is set to expire at the end of 2025, and those expenses will be deductible once again, resulting in more taxpayers itemizing.
7. Increased Alternative Minimum Tax Exemption & Phaseout Amounts – The TCJA increased the individual Alternative Minimum Tax (AMT) exemption amounts for tax years 2018 through 2025. TCJA also increased the AMT income phaseout amounts, narrowing the scope of those subject to AMT. The increases to the AMT exemption and phaseout amounts are set to expire at the end of 2025. This, coupled with the limit on state and local taxes being lifted, will result in significantly more taxpayers being subject to AMT.
8. Increased Estate Tax Exclusion – The estate exclusion is the amount individuals can pass on without triggering federal gift or estate taxes. The TCJA doubled the estate tax exclusion to $11.2 million per person in 2018. This exemption amount is adjusted annually for inflation. As of 2023, this exemption amount is at $12.92 million. However, after December 31, 2025, this increased exclusion will be cut in half for the 2026 tax year, which is important to consider for estate planning purposes. Click here to read more on the topic.
This is not an exhaustive list of expiring tax provisions, and inevitably additional tax legislation between now and when these provisions are set to expire may change various aspects of these provisions, but it is important to be aware of the current tax landscape. Please consult with your trusted BRC tax advisor to plan for these expiring provisions and more!
The information contained in this article is for informative purposes only and should not be relied on when making any business, legal, or other decisions. This information may be updated without notice and/or may not contain the most current information that is available related to this topic. Please consult with your advisor to determine how this information applies to your specific facts and circumstances.